Urban Economic Reform

Success in the countryside laid the foundation for deeper reform, and the wave of reform spread from rural areas to cities. Under the highly centralized planned economy, state-owned enterprises were appendages of the government, lacked autonomy and were inefficient, and the economy lacked vitality. In October 1984 the Third Plenary Session of the 12th Central Committee adopted the Decision on Economic Structural Reform, which stated that the socialist economy is a planned commodity economy based on public ownership. This broke with the traditional view that set the planned economy against the commodity economy, and marked a shift in the focus of reform from the countryside to cities as economic reform unfolded across the board. Urban reform took invigorating enterprises as its central link: separating government from enterprise management, separating ownership from management to a suitable degree, expanding enterprise autonomy, and introducing contract management and the factory director (manager) responsibility system so that enterprises ran themselves and bore their own profits and losses. Public ownership remained dominant while individual, private and foreign-funded sectors were allowed and encouraged to develop together. Self-employed traders and private businesses appeared in large numbers, with Nian Guangjiu’s “Fool’s Melon Seeds” a well-known example. In 1986 China promulgated the Enterprise Bankruptcy Law (Trial), and the Shenyang Explosion-Proof Equipment Factory became the first state-owned enterprise to go bankrupt in the People’s Republic. Urban reform invigorated enterprises, promoted the commodity economy and clearly raised material and cultural living standards, though problems such as rising prices also appeared.